Tuesday, November 19, 2013

If only President Obama had read chapter 19

If you sell insurance at a single price, anticipate that high risk individuals will be more likely to buy, and price accordingly. 

Recent data out of Kentucky, which has one of the best performing exchange websites in the U.S., show that the average age of enrollees is about 51, ten years above expectations.  To insure these higher cost individuals, premiums will have to "skyrocket" and this leads to the so called "death spiral." 

This happened in New York, New Jersey and Massachusetts where young people opted out of the system as a whole because of high prices.

“As premiums rose, healthy people dropped out meaning the risk pool was high,” Herrick says. “Premiums rose again, and more healthy people dropped out. The costs for individual insurance were double and triple the national average.”

If President Obama had read Chapter 19, he would have known to anticipate this kind of adverse selection.

Don't worry though, I am sending him a copy of my book. 
HT:  Roberta


  1. Let us know when you get feedback from the White House!

  2. My friend is an industrial engineer for Deloitte who was contracted to work on the Kentucky Exchange. She says that even though they are one of the best examples of how the system can work, there are still many flaws and issues with Kentucky's system, mainly caused by lack of time to implement it. It is interesting to hear behind-the-scenes accounts of a "successful" exhange.